Transcript Document

Global Warming Implications and
Opportunities for Your Practice
Meritas Annual Meeting
April 23, 2009
Orlando, FL
Barry S. Neuman
Merrill J. Baumann, Jr.
CARTER LEDYARD & MILBURN LLP
www.clm.com
Partners for Your Business®
2008
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2030?
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The International Context

United Nations Framework Convention On
Climate Change
1992 UN Rio De Janeiro Conference On
Environment And Development
 Developed And Developing Countries Have
“Common But Differentiated” Responsibilities

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Established Annual Conference of Parties
(COP)
Legislative-Type Body to Implement Goals
 Negotiated Kyoto Protocol At 1997 COP Meeting

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Kyoto Protocol
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Became Effective In 2005
183 Countries Have Ratified
U.S. Is Only Major Industrialized Country Not
to Sign
Sets Binding Emissions Limits On Developed
Countries
Must Be Met By 2012
 Different Countries Must Reduce Emissions By
Different Percentages Below 1990 Emissions
(U.S. Figure Was to Be 7% Below 1990)
 Overall Goal: to Reduce Emissions By 30% Below
“Business As Usual”
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Flexibility
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Each Country Decides How to Meet Its Limits
International Emissions Trading System
Clean Development Mechanism (CDM)
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Developed Country Invests in Project In Developing
Country
Countries Can Band Together As One Unit

European Union
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Looking Towards Post-2012 Commitment
Period

Bali Conference (December 2007)
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First Comprehensive Negotiations For Post - 2012
U.S. Declines to Agree to Binding Emissions
Reductions
Discussions Continued In Poznan, Poland In
December 2008
Next Conference -- Denmark (December
2009)
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E.U. Trading Scheme
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Opened for business January 1, 2005
One of the policy measures to enable E.U. to
meet Kyoto Protocol targets
In effect in 25 E.U. member states
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E.U. Trading Scheme
Sectors Covered:
 Electric Power (20 MW capacity plants)
 Oil Refineries
 Coke Ovens
 Metal Ore and Steel
 Cement Kilns
 Glass
 Ceramics
 Paper and Pulp
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E.U. Trading Scheme
Timetable:
Phase I: 2005 – 2007
 Implement National Allocation Plans
 Assess Reliability of Emissions Data
 362 Metric Tons Traded 1st Year
Phase II: 2008 – 2012
 Coincides with Kyoto Renegotiation
 Aviation Sector Included
 Norway, Iceland, Liechtenstein Join
 Litigation against Austria, Czech Republic, Denmark, Hungary,
Italy and Spain (late NAPs)
 Target Reductions: 7%
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E.U. Trading Scheme
Distribution of Allowances
 Phase I: Most Given Away Free
 Auctioning of Allowances Later
 Banking and Borrowing Allowed
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E.U. Trading Scheme
Criticisms:
First Year:
 Data Collection Problems
 Overallocation of Allowances
 Cap Too High
 No Incentives to Reduce
 Phase I Allowances – Worthless
Claims of Allowance Double-Counting
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Possible U.S. Legislation

Waxman-Markey Draft (March 31, 2009)
Subcommittee Mark-Up This Month
 Committee Mark-Up In May
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Title I and II: Clean Energy & Energy
Efficiency
Incentives/Requirements for Carbon Capture And
Sequestration (CCS)
 Promote Smart Grid
 Grants/Loans to States, Munis And Private
Companies For Large-Scale Demonstration of
Electric Vehicles
 Funding to Retrofit Existing Buildings
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Title III: Climate Change
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Cap-And-Trade Program
Silent On Free Allocation vs. Auctioning of
Allowances
Covers 85% of U.S. GHG Emissions
By 2050, 83% Reduction In Emissions Below
2000 Levels
Preempts State Cap-And Trade Programs For 5
Years
Prohibit EPA From Regulating Carbon
Emissions From Stationary Sources
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International Trade Implications

Various Proposals to Protect U.S. Industry
Border Adjustments On Imports From Countries
Lacking “Comparable” Controls
 Internal Subsidies For Disadvantaged U.S.
Companies
 H.R. 1759 (Reps. Inslee And Doyle)
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International Trade Implications
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May Be Necessary to Enact Legislation
But:
Are Vulnerable Under WTO/GATT
 Ignite Trade Wars?
 Recent Threat of E.U. vs. U.S..
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Prospects For Passage
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On One Hand:
Complex Effort/Broad Impacts on U.S. Economy
 Never Been Subject to Full Debate
 Republican Committee Members Oppose Cap and
Trade
 Moderate Democrats Reluctant
 Obama Stepping Back?
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Prospects For Passage

On Other Hand:
Bill Goes Far to Accommodate Moderate Concerns
 Reflects Many Recommendations of Climate Action
Partnership
 The Alternative -- Direct Regulation by EPA
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EPA Regulatory Initiatives

Massachusetts v. EPA (2007)
5-4 Decision
 EPA Has Authority to Regulate GHG Emissions
From Motor Vehicles Under The Clean Air Act
 EPA Must Determine Whether GHG Emissions
From Motor Vehicles Pose A Danger, And, If So, It
Must Regulate
 Endangerment Finding Is Imminent
 The Real Kicker:
 Logic of Decision Applies to “Stationary
Sources” -- Factories, Industrial Plants, Any
Source of GHG That Doesn’t Move
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GHG Emissions Inventory
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EPA Proposed Rule
Would Require Annual GHG Emission
Reporting
Purpose: “To Support A Range of Future
Climate Change Policies And Regulations
Applies To:
Suppliers of Fossil Fuels And Industrial Chemicals,
 Manufacturers of Motor Vehicles And Engines
 Facilities That Emit 25,000 Metric Tons Per Year of
CO2 Equivalents
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GHG Emissions Inventory
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Would Cover About 13,000 Entities Emitting
About 85% of GHG Emissions In The U.S.
Cement Production
 Electricity Generation
 Ethanol Production
 Electronics Manufacturing
 Pulp And Paper Manufacturing
 Petroleum Refining
 Petrochemical Production
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Reporting Would Be Required At The Facility
Level
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Regional Greenhouse Gas Initiative
(RGGI)
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The First Mandatory Cap-And-Trade Program
In U.S. For C02
Ten States
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CT; DE; MA; MD; ME; NH; NJ; NY; RI;VT
Applies to Electric Power Generation
Account For 25% of C02 Emissions In The Region
 ≥ 25 Mw
 225 Facilities
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Regional Greenhouse Gas Initiative
(RGGI)
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Aggregate Regional Cap of 188 Million Tons
Each State Is Allocated A Share of The Cap
 Each State Then Issues C02 Allowances In A
Number That Is Proportional to Its Share
 Each Allowance Equals A Permit to Emit One Ton
of C02
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Cap On C0 Emissions Will Be 10% Lower In
2018 Than 2009
Revenues From Auctions Allowances Invested In
Energy Efficiency And Renewable Energy
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Regional Greenhouse Gas Initiative
(RGGI)
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Allowance Market
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States Distributes Allowances Through Regional
Auctions
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Allowances Can Also Be Traded On Secondary
Market
 Power Plants That Obtain More Allowances Than
They Need Can Sell Excess Allowances; Those
Needing More Allowances Can Buy Them
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Regional Greenhouse Gas Initiative
(RGGI)
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Emission Offsets Allowed
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Can Be Used to Meet 3.3% of Compliance
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Limited GHG Reduction Projects Outside The
Electricity Generation Sector
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Regional Greenhouse Gas Initiative
(RGGI)

Allowance Auctions
Quarterly Auctions
 Minimum Clearing Price $1.86/Ton
 Independently Monitored
 Three Auctions Thus Far
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Regional Greenhouse Gas Initiative
(RGGI)
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December ’08 Auction:
Demand Was 3.5 X Supply
 Low Concentration of Bids
 Distribution of Bid Prices Indicates That Prices
Were Elastic And The Results Were Competitive
 76% of Bids From Regulated Entities
 24% of Bids From Env. Groups And Financial
Institutions
 Clearing Price of $3.38
 Raised $106.5 million
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Western Climate Initiative
www.westernclimateinitiativbe.org
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Signed on February 26, 2007 by Washington,
Oregon, California, Arizona and New Mexico
Allows other U.S. states, tribes, Canadian
Provinces and Mexican states to observe and
join
WCI goal set August 2007: reduce region-wide
GHG emissions to 15% below 2005 levels by
2020
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WCI Participants
U.S. Partners:
 Arizona, California, Montana, New Mexico, Oregon,
Utah, Washington
Canadian Partners:
 British Columbia, Manitoba, Ontario, Quebec
Observers:
 Alaska, Colorado, Idaho, Kansas, Nevada, Wyoming,
Saskatchewan, Baja California, Chihuahua, Coahuila,
Sonora, Nuevo Leon, Tamaulipas
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WCI Significance
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Together the WCI Partners represent over 70
percent of the Canadian economy and 20
percent of the U.S. economy
Collectively would be the 3rd largest economy in
the world
Will influence U.S. and Canadian national GHG
reduction programs
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WCI Design Recommendations
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Released September 23, 2008
Broader Scope than RGGI: when fully
implemented, the WCI cap & trade program will
cover nearly 90% of the GHG emissions in the
WCI region
The cap & trade program will work with other
“complementary” policies to reach the WCU
regional goal
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Scope of the WCI Cap & Trade Program
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By January 1, 2012:
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By January 1, 2015:
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Electricity
Combustion at industrial and commercial facilities
Industrial process emission sources
Emissions to be covered upstream
Transportation fuel combustion
Residential and commercial fuel combustion
Threshold coverage level: 25,000 MT CO2e or more
per year
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Offsets & Other Allowances
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Program will include a rigorous offsets system to
reduce compliance costs
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Will also recognize allowances from other GHG trading
systems
WCI will develop criteria for offsets and other system
allowances
WCI will limit offsets and allowances from other
trading systems to no more than 49% of the total
emissions reductions from 2012 – 2020
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Purpose to ensure that a majority of emissions reductions
occur at WCI covered entities and facilities
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Reporting
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Mandatory measurement and monitoring of
GHG emissions to start in January 2010
Mandatory reporting to start in January 2011
Threshold coverage level: entities and facilities
with annual emissions equal to or greater than
10,000 MT CO2e
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Other State Initiatives
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Many states developing or implementing cap & trade
California Global Warming Solutions Act of 2006
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Enacted September 2006
Requires GHG emissions reduced to 1990 levels by 2020
Early Action measures (low carbon fuel standard, mobile air
conditioning, tire pressure program, shore power for oceangoing vessels)
Governor has “safety valve” in the event of extraordinary
circumstances
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Other State Initiatives
The Oregon Standard
 Enacted 1997
 All new power plants required to offset part of
their CO2 emissions
 Payment of Mitigating Funds allowed
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The Oregon Standard
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Early trading in U.S. of carbon dioxide offsets
Quantification of emission reductions (usually
in metric tons) achieved by new actions
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Offset Criteria
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Real Reductions – Activity must be lower aggregate emissions from
an agreed-upon baseline emissions level in the past
Permanence – Activity cannot be easily undone (efficiency
upgrades, reforestation projects)
Quantifiability and Verifiability – Detailed monitoring and
verification plan specific to that particular project that defines how,
when and by whom the quantification and verification will be done
Additionality –Offset producer must prove that the emission
reductions reflected in the offset would not otherwise have been
realized under a “business as usual” scenario. In many cases,
additionality is established by confirming that the emission
reduction project would not get off the ground but for receipt of
offset funding
Registration – to ensure they are not sold multiple times and
double-counted
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Examples of Offset/Emission Reduction
Projects
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Traffic signal optimization
Energy efficiency
Reforestation
Truck Stop Electrification
Biodigesters
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Climate Change Litigation
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National Environmental Policy Act (NEPA)
Requires Preparation of Environmental Impact
Statement For Every “Major Federal Action” That
“Significantly Affects The Quality of The Human
Environment”
 Permitting, Licensing, Proposals For Action,
Funding of Projects
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Climate Change Litigation
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NEPA
Impacts of Global Warming Must Be Addressed
 Border Power Plant Working Group v. DOE, 260
F.Supp. 2nd 997 (S.D. Cal. 2003)(Transmission Line)
 Mid States Coalition For Progress v. STB, 345 F.3d
520 (8th Cir. 2003) (Rail Line For Transportation of
Coal)
 Friends of The Earth v. Mosbacher, 488 F.Supp.2d
889 (N.D. Cal. March 20, 2007) (Financing of
Overseas Project By OPIC And Export-Import Bank)
 Bravos v. Bureau of Land Management (D.N.M. Filed
Jan. 2009 (Oil And Gas Leases)
 But: Analysis Can Be Cursory
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State “Mini-NEPA Laws”
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California Environmental Quality Act (CEQA)
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State of Cal. v. San Bernadino
 State A.G. Sues County
 Settlement: County to Develop GHG Emissions
Inventory Re Land-Use Decisions And County
Operations, Set Emissions Reduction Goals And
Adopt Mitigation Measures
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State “Mini-NEPA Laws”
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Massachusetts Environmental Policy Act (MEPA)
Exec. Office of Energy And Environmental Affairs -GHG Policy (April 23, 2007)
 Applies to Many Projects Subject to Review Under
MEPA
 Requires Quantification of Project-Related GHG
Emissions
 Requires Consideration of Mitigation Measures And
Alternatives
 Harvard University Expansion of Alston Campus
 First Project In Nation to Legally Bind A Developer
to Reducing GHGs Beyond Current Standards
 Voluntary Commitment to Cap GHGs Below
Existing Standards In Implementing 20-Year Master
Plan
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State “Mini-NEPA Laws”
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New York State Environmental Quality Review
Act (SEQRA)
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March 2009 Proposed Guidelines Issued By State
DEC
Protocols For Analysis Vary
Direct Operational Impacts
 Purchased Electricity
 Induced Vehicle Trips
 Construction Impacts
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Common Law Litigation
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Public Nuisance: Unreasonable Interference
With Public Safety or Health

Connecticut v. American Electric Power Co., 2005
U.S. Dist. Lexis 19964 (S.D.N.Y. Sept.. 22, 2005)
(Appeal Pending)
 Eight States Sue Five Biggest Power Companies
 Allege GHG Emissions Constitute Public
Nuisance By Contributing to Global Warming
 District Court Dismisses Based On Political
Question Doctrine
 Appeal Argued In 2d Cir. In June 2006
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Common Law Litigation

California v. General Motors Corp., 2007 U.S.
Dist. Lexis 68547 (N.D. Cal. Sept. 17, 2007)
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Same Result
Native Village of Kivalina v. ExxonMobil
Corp., Cv 08-1138 (N.D. Cal., Filed 2/26/08)
Alleges GHG’s From Oil, Electric Utility And
Coal Companies Are Nuisance
 Village Sits 10 Feet Above Sea Level And Is
Threatened By Flooding
 Seeks $400 Million In Damages As Cost of
Relocating The Entire Village
 Motions to Dismiss Pending
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The Far Reach of Climate Change
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Securities Laws: When and how to disclose
climate risk?
Contracts, Property, Energy: Get used to it
Insurance: Unpredictability of climate events
creating pricing challenges; potential new
products
Stimulus Funds: Opportunities
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Thank you.
Barry S. Neuman
[email protected]
202-623-5705
CARTER LEDYARD & MILBURN LLP
www.clm.com
Partners for Your Business®
Merrill J. Baumann, Jr.
[email protected]
503-242-9620